Reddit Inc (RDDT) is facing intense selling pressure on Wednesday as investor actively recalibrate their exposure to high-multiple technology assets.
Following today’s pullback, RDDT sits decisively below its major moving averages (MAs) – with an RSI in the early 40s indicating further downside room before the stock hits “oversold” territory.
Versus its year-to-date, Reddit stock is now down more than 40%.
Pre-Nvidia jitters are hitting Reddit stock
The primary catalyst driving the sell-off in RDDT shares on Wednesday is institutional de-risking ahead of Nvidia’s highly anticipated quarterly earnings.
Because Reddit has increasingly branded its corporate identity as a high-margin “AI data-licensing play” – leveraging highly publicized, lucrative training content partnerships with tech giants like Google and OpenAI – its stock often moves in tandem with the speculative AI ecosystem.
With institutional trading desks proactively reducing risk across AI-adjacent software names to shield portfolios from potential macro volatility, high-growth tech names are bearing the brunt of the pre-earnings anxiety.
In short, traders are taking cash profits off the table ahead of Nvidia earnings, which they believe will offer more colour on the broader AI infrastructure capex trend.
RDDT shares sink on valuation concerns
Despite a sharp sell-off in Reddit shares this year, they continue to command a rather premium P/E multiple of nearly 33x, leaving hardly any room for operational error.
The social news aggregation platform is currently more expensive to own than peers – including Pinterest Inc.
These valuation concerns are evident in options pricing as well.
The put-to-call ratio on contracts expiring late June sits at 2.26 currently, indicating a very strong bearish skew.
The lower price on those contracts is set at roughly $127, signaling Reddit could crash up to 12% over the next four weeks.
And it’s not like RDDT pays a healthy dividend to incentivize ownership despite bearish valuation and derivatives market data.
Macro headwinds and yield curve pressure
Adding to pressure on RDDT stock today is a fairly restrictive macroeconomic environment that’s actually weighing heavily on other long-duration growth assets as well.
The global bond market has emerged as a headwind for growth stocks over the last 24 hours, pushing the baseline US 10-year Treasury yield up toward 4.66% as inflation anxieties continue to ripple through the energy markets.
Higher risk-free yields inherently compress equity risk premiums, making high-flying tech names less appealing to institutional money managers.
This micro-level algorithmic selling is obscuring Reddit’s otherwise exciting fundamental growth engine, including an impressive 44% increase in Q1 average revenue per user (ARPU) and a 75% increase in international revenue.
That said, Wall Street remains bullish as ever on RDDT, with a consensus “moderate buy” rating and a mean price target of about $222, which signals potential upside of nearly 50% from current levels.
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